Bidding wars aren’t going going gone, but no longer dominate
Competition among buyers has been on a steady decline since the beginning of 2022, and has now dropped to the lowest rate since the beginning of the pandemic.
- The bidding-war rate peaked in January 2022 at 69.6% of offers, dropping to 44.6% in August — a nearly 20 point decrease from a year prior.
- The rate of bidding wars has declined in parallel with the rise in mortgage rates and the resulting increase in monthly payments.
- Inflation is a factor in reducing homebuyer budgets and limiting their appetite for bidding wars.
Throughout much of the pandemic, sellers have had an advantage: Homes sold in record time, and for well over their listing prices in many markets. But now, with persistent inflation and mortgage rates double what they were a year ago, buyers are less willing — or able — to compete at the same pace, even though inventory remains relatively tight, according to a Redfin report tracking bidding-war rates since April 2020.
The Redfin data shows a steady decline in bidding wars beginning in January 2022; as of August, the share of offers written by Redfin agents facing competition dropped to 44.6%, the lowest rate since April 2020 — when homeselling activity was largely paused due to pandemic restrictions.
This lack of competition suggests that some buyers can no longer afford to compete for homes or believe they can renegotiate their offers; indeed, more than 17% of homes under contract were canceled in September, the highest percentage on record. Before the pandemic, the average rate of cancellations held steady around 12%. Less competition also gives buyers more breathing room and an advantage in select markets, particularly those that experienced rapid growth during the pandemic.
"Sellers should anticipate that buyers are unwilling or unable to pay a price similar to what their neighbor's home sold for a month ago, and buyers should connect with their lenders to find ways to mitigate the impact of rising rates," said Redfin Deputy Chief Economist Taylor Marr.
Of the 36 markets in the Redfin report, those with the biggest year-over-year declines were Raleigh, NC (35.4%, down from 78.9%); San Antonio, TX (21.7%, down from 59.8%); and Charlotte, NC (31.4%, down from 68.8%).
Only one of the analyzed markets showed increases in their bidding-war rate: Philadelphia, the metro with the highest overall rate (61.7%), was up slightly year over year. Several markets remain highly competitive, particularly in the Northeast and the Bay Area. After Philadelphia, the highest rates of bidding wars occurred in San Jose (58%), Providence (54.5%) and Boston (54%).
In addition to the competition data, other indicators of shifting market conditions include a decline in pending home sales, which were down 32% year-over-year in October — the biggest drop since May 2020 — and a record high number of homes with price reductions. Combined, the data suggests that sellers in many markets may have a harder time selling their homes as quickly or at the prices they've come to expect.
Where does this leave buyers and sellers? Though inventory is inching up, mortgage rates and inflation are dampening buyers' enthusiasm — but for the first time in a couple of years, buyers may have the opportunity to shop around and negotiate. If they have the budget to enter the market at all.